In less than three weeks, the New Mexico Legislature will gavel in for the 2024 legislative session. In a 30-day session like the one ahead, the body’s number-one mission is to produce a balanced budget for the next fiscal year. But what could that look like this time?
Earlier this month, the GACC hosted Legislative Finance Committee Director Charles Sallee for a virtual event focused on the state’s finances to help give us an idea of what the budget could – or should – look like.
Sallee started off with an overview of where New Mexico’s revenues and finances have historically looked like: a rollercoaster of highs and lows, all dependent on oil and gas revenues that in turn depend on national and even international supply and demand. In years with large revenues, spending goes up too, while leaner years resulting from price crashes or lower oil and gas production have meant smaller budgets, and even cuts.
While New Mexico continues to enjoy record budget surpluses, those revenues might be set to level off soon – and sooner than originally anticipated. Long-term industry projections show production might peak within the next five years, cutting short the revenue abundance that was originally projected to last another decade, Sallee told the virtual audience.
Fortunately, New Mexico has made some important fiscal policy changes over the last decade. Revenues from the permanent fund help reduce New Mexico’s reliance on the oil and gas industry, and the state’s “rainy day” funds have created a safety net to help stabilize the state’s fiscal position. Even so, changes in tax policy that reduce tax revenue can offset that progress, Sallee said. This includes programs and incentives like tax credits for certain residents, tax incentives for individual businesses or entire industries and tax refunds.
So what’s ahead for future state budget-building? For starters, continued budget growth isn’t sustainable. Recurring appropriations of state funds have grown steadily since 2018, thanks to consecutive years of tapping into record budget surpluses. This growth needs to slow or level out, Sallee said, and legislators and budget experts must find a way to spread out the short- and medium-term surplus to ensure it has a lasting impact.
Another key is ensuring investments in state programs yield the intended results, Sallee said, and our state’s education system should be one of our most powerful tools. Education is critical for improving life – and raising income – for New Mexicans. But federal data shows our kids are still behind, year after year, with New Mexico students’ scores dropping relative to national averages from 2009 to 2016.
One way to make a change could be more instructional time, he said. On average, New Mexico students are below the national average for instructional time, with calendars that often add up to a shorter school year. “Kids just aren’t in school for long enough,” he said. Implementing a requirement for more learning time (and of course, funding a longer school year), could be the answer, and it’s an idea the Legislature will consider this session.
Meanwhile, with the window of opportunity for tax reform closing as record-setting revenues slow, it may be now or never. “If not now, when will tax reform happen?” GACC President and CEO Terri Cole asked.
Sallee said the surpluses have indeed created room to discuss broadening the tax base to reduce the rate, but the likelihood of that debate occurring during the 2024 session looks low. Here’s hoping the Legislature doesn’t wait too long to take up tax reform. New Mexico needs to be able to compete with our neighboring states to recruit new businesses and new residents, and our tax code isn’t exactly helping us in this effort.
In concluding, Sallee pointed out these revenues continue to create an opportunity for our state to address long-term challenges. Our task now is to strategically invest in programs and initiatives that will help us effectively overcome these challenges and move into the future.
Big thanks to Charles for taking the time to talk with us during the busiest time of year for the Legislative Finance Committee! We’ll be keeping these facts in mind as we advocate for a balanced budget that helps make our state stronger now and prepares New Mexico for the future.
To watch Sallee’s full presentation, watch the event recording here.
